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Buffalo Billion money aids IBM, but is state revealing all?

The Buffalo Billion program, which includes $55 million in state aid to IBM, has been championed by Gov. Andrew Cuomo and is a bold and costly experiment in economic development, but it is beset by secrecy and

The Buffalo Billion program, which includes $55 million in state aid to IBM, has been championed by Gov. Andrew Cuomo and is a bold and costly experiment in economic development, but it is beset by secrecy and politics, and banking on a company with a history of losing money.

The program — hailed in Buffalo but resented across much of the rest of New York — has been promoted as both a catalyst for rejuvenating the western New York economy and a model for other upstate regions.

A major development contract awarded for Buffalo Billion work involves renovations to a downtown office tower to accommodate IBM and 500 jobs that would create a technology hub. IBM expects to phase in jobs over the next five years.

But the management of the Buffalo Billion by the Cuomo administration has raised eyebrows — and concerns — in some quarters.

Consider:

•One of Cuomo’s largest campaign contributors from the Buffalo area has been awarded contracts to develop two of the three facilities that will house companies recruited to set up shop in Buffalo. The state’s original solicitation for a developer to build a massive solar panel manufacturing plant included a requirement that would have limited the pool of respondents to just one firm, LPCiminelli, whose owner has contributed $96,500 to Cuomo’s campaign during his two races for governor. The state later relaxed the requirement, but awarded the contract to Louis Ciminelli’s firm anyway.

•The state development corporation managing the Buffalo Billion has taken up to a year to release public records that, among other things, detail how Ciminelli and other developers were selected. Documents detailing how much developers are getting paid have been redacted to remove payment figures. One of Cuomo’s lieutenants went so far as to liken a reporter’s efforts to obtain records under the state Freedom of Information Law to terrorism.

•The state is making its biggest investment — $750 million — to build a solar panel manufacturing plant for SolarCity despite the company’s mounting financial losses and legal problems. The company lost a record $375 million last year and is the subject of a federal investigation considering its receipt of stimulus funds.

“This program involves very big risk, very little accountability, and very large amounts of tax dollars. It’s a cockamamie way of doing the public’s business,” said John Kaehny, executive director of Reinvent Albany, a watchdog group.

These troubles notwithstanding, Cuomo has generated a lot of enthusiasm and positive press coverage for the program in the Buffalo area. The SolarCity complex now being constructed in Buffalo promises to employ up to 3,000 people when suppliers and support services are included.

It hasn’t hurt that the rollout of the initiative has coincided with a modest, if uneven improvement in the Buffalo-area economy that Cuomo has proclaimed “a national success story.”

Data tell another story: Job growth in Erie and Niagara counties last year lagged behind the nation and rest of the state, the downtown office vacancy rate rose last year and poverty in the city of Buffalo — like its sister city Rochester — is climbing and ranks among the worst in the United States.

“There’s been no sea change in our regional economy. I don’t know that we’re much better off than we’ve been, other than construction,” said James Allen, executive director of the Amherst Industrial Development Agency, one of the region’s largest prominent economic development officials.

Others see signs of progress.

“We’re growing more slowly than the rest of the nation, but we’re growing,” said George Palumbo, professor of economics and finance at Canisius College. “It’s a significant departure from what we had been doing before.”

IBM Corp. logo.(Photo: AP Photo/Seth Wenig, File)

Program to accommodate IBM

McGuire Development will handle the renovation’s of IBM’s downtown office tower and creation of its technology hub. The work includes building renovations and equipment purchases totaling $55 million in state assistance. Work is scheduled to start this summer and fall.

McGuire wasn’t a big-time Cuomo contributor at the time the company was awarded the contract, having donated only $2,000 to the governor’s campaign four years ago. But last May, three months after being awarded the Buffalo Billion work, McGuire wrote the Cuomo campaign a check for $25,000.

The state is helping IBM set up shop in Buffalo as the company continues to scale back its operation downstate.

IBM’s employment in Dutchess and Ulster counties peaked at 31,000 jobs in the 1980s. Big Blue has ceased operations in Ulster County and had about 6,000 workers in Dutchess County in 2014.

Most of the downsizing occurred in the early 1990s, but smaller waves have occurred more recently.

While IBM has scaled back its operations in the mid-Hudson Valley, the company has shifted some work to the Albany NanoTech facilities at the state university center there.

Throughout the years, IBM has received hundreds of millions of dollars in government subsidies. The Buffalo Billion project will add to that.

Workers run electric conduit through the foundation of the RiverBend at Buffalo complex. The building’s tenant will be SolarCity, which is obligated to create 1,460 jobs.(Photo: Democrat & Chronicle)

Region was lagging

The Buffalo Billion is Cuomo’s attempt to jump-start a regional economy that hasn’t fully recovered from a shock wave of plant closings and resulting job losses in the 1980s.

Cuomo proposed what’s become known as the Buffalo Billion during his 2012 State of the State address. The initiative borrows from the model used to develop a nanotechnology sector in Albany. In that program, New York is paying to build and equip facilities for companies that will function as anchor tenants and attract other companies in their sector.

The governor not only bought into the model but charged its architect, Alain Kaloyeros, with carrying out the program in Buffalo.

While most of the attention has focused on three big-ticket projects, the Buffalo program is sprinkling dollars throughout Erie and Niagara counties on more than 15 initiatives. State funds are being invested to help Niagara Falls’ tourism sector, attract startup companies to the region and help manufacturers adapt to changing markets.

Most of the attention — and funding — has gone to three projects aimed at seeding clusters in technology, clean energy and pharmaceutical drugs. And it is these projects in which Cuomo and Kaloyeros have employed tactics that have raised the specter of favoritism and secrecy.

Donors awarded contracts

In December 2012, Cuomo announced the first of the projects, a $50 million state investment to build and equip a pharmaceutical drug research facility to attract Albany Molecular Research Inc. to the Buffalo Niagara Medical Campus. AMRI has committed to bringing 75 jobs to the facility, with other companies expected to add an additional 175.

After considering several other sites, the Fort Schuyler Management Corp., a 501(c)3 nonprofit corporation created by the State University of New York Research Foundation that is charged with managing the development of Buffalo Billion facilities, settled on space atop a six-story medical building that was under construction at the edge of the city’s downtown medical campus.

Fort Schuyler contracted with LPCiminelli, whose owner Louis Ciminelli is the brother of Paul, to add a seventh floor to the building. LPCiminelli was presumably selected because it was already the general contractor for the project.

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New York state is investing $500 million from the Buffalo Billion, plus an additional $250 million from other sources, to build a 1.2 million-square-foot manufacturing facility on part of the old site of Republic Steel in south Buffalo.
MAX SCHULTE/@maxrocphoto/, STAFF PHOTOGRAPHER

A steel beam is placed as work erecting the frame of the building nears completion. SolarCity will be the main tenant when the building is completed, but the state will own the building.
MAX SCHULTE/@maxrocphoto/, STAFF PHOTOGRAPHER

A steel beam is placed as work erecting the frame of the building nears completion. SolarCity has pledged to create 1,460 jobs over the next 10 years, plus 1,400 more in supplier jobs.
MAX SCHULTE/@maxrocphoto/, STAFF PHOTOGRAPHER

A welder cuts off footers that are being placed for an expansion of the building that was not on the original plans. The overall project has the unwieldy name of "Buffalo High-Tech Manufacturing Innovation Hub @ RiverBend."
MAX SCHULTE/@maxrocphoto/, STAFF PHOTOGRAPHER

Antoine Rushing, with the carpenters union, attaches anchors to hold the skin to the building. SolarCity has also pledged to create 2,000 solar panel installation jobs around the state.
MAX SCHULTE/@maxrocphoto/, STAFF PHOTOGRAPHER

Cranes are seen from the opposite end of the roof still working to complete the framing of the building. The massive complex stretches for about a third of a mile across the Buffalo River from downtown proper.
MAX SCHULTE/@maxrocphoto/, STAFF PHOTOGRAPHER

More electric conduit being run through the old foundations of Republic Steel buildings. The state investment is replicating the model used in Albany to create the College of Nanoscale Science and Engineering.
MAX SCHULTE/@maxrocphoto/, STAFF PHOTOGRAPHER

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How did the selection process play out, and how much was LPCiminelli paid to do the work? Kaloyeros and other Fort Schuyler officials have repeatedly declined to answer questions or release documents to Investigative Post that speak to the selection process. The amount of money Ciminelli is getting paid was redacted from documents posted on Fort Schuyler’s website.

Kaloyeros and Fort Schuyler were also slow to release documents requested under the FOI Law about the selection process used to hire LPCiminelli to develop the SolarCity plant near the Buffalo waterfront.

That job was not competitively bid. Rather, Fort Schuyler issued a request for proposals from developers in October 2013. The original solicitation limited the pool of potential respondents to developers based in the Buffalo area with “over 50 years of proven experience and successful track record in the construction and operation of mixed-use facilities and buildings.”

Only one company appeared to meet that requirement — LPCiminelli.

Fort Schuyler officials changed the requirement to 15 years after being challenged by other developers and questioned by Investigative Post. A spokesman termed the original requirement a “clerical error.”

Fort Schuyler officials awarded the work to build the sprawling 1.2 million-square-foot plant to LPCiminelli in February 2014.

After declining for months to answer questions or provide provide documents to Investigative Post, officials from Fort Schuyler drafted a report that cast the selection process in a favorable light. The report said LPCiminelli was selected because of its “greater experience with public-private partnerships, legal team presented in its proposal, existing employee resources, and construction bonding capacity.”

The report, however, did not include any of the documents that Investigative Post had requested under the FOI Law. To this day, Fort Schuyler has repeatedly declined to release the documents.

No one has suggested that LPCiminelli is not qualified to do the work; it is the largest construction management firm in the region. Rather, questions have arisen about the process used to select the firm for two of the program’s three projects.

New York State plans to invest $500 million from the Buffalo Billion to establish infrastructure at the site and construct a 1.2 million square feet manufacturing facility.(Photo: Max Schulte/Democrat & Chronicle)

Lack of transparency

Attorneys for Fort Schuyler maintain the corporation is exempt from the FOI Law because of its nonprofit status.

Kaloyeros, in an email in November to an Investigative Post reporter, offered a second reason for his refusal to provide documents or answer questions, declaring he does not “respond to perceived threats and terrorism.”

The State Committee on Open Government issued a nonbinding advisory opinion in March that concluded the agency is subject to the Freedom of Information Law.

“In my opinion, it is cut and dried,” said Robert Freeman, the committee’s executive director. “It is, in essence, a governmental agency, that it is required to comply with FOIL.”

Investigative Post subsequently filed an Article 78 petition on May 19 in state Supreme Court seeking a declaration that Fort Schuyler is subject to the FOI Law and release the balance of the unreleased documents. The suit was filed with the financial support of the Gannett Co. Inc. and WGRZ, Investigative Post’s television partner.

Fort Schuyler started posting records on its website in December. Some 39 documents, some of them redacted, were posted as of Friday. Documents include several that were the subject of Investigative Post’s court action; the records appear to have been posted after the lawsuit was filed.

Empire State Development Corp., which funds the Buffalo Billion work that Fort Schuyler manages, has been slow to release Buffalo Billion documents requested under the FOI Law.

Investigative Post has filed three FOIs requests with ESD since February that seek documents that include, among other items, developer contracts and invoices. ESD to date has released only a small portion of the requested documents. Some of the requested documents have recently been posted to Fort Schuyler’s website, although key information, such as payments to developers, has been redacted.

State officials were also unwilling to grant interviews for this story. ESD President Howard Zemsky, a champion of the Buffalo Billion program, has declined interview requests since Investigative Post filed its first FOI request with his agency. Meanwhile, Kaloyeros’ spokesman didn’t respond to emails and phone calls seeking comment. Several phone calls to Cuomo’s office seeking comment also have not been returned.

SolarCity’s shaky foundation

Investment in Buffalo Billion projects is dwarfed by the $750 million in cash, tax credits and other assistance Cuomo is putting into a solar-panel manufacturing plant being built near the Buffalo waterfront.

The plant will be the largest solar panel manufacturing facility in the nation, making Buffalo a player in the emerging clean energy sector. The facility will be operated by SolarCity, which is headed by entrepreneur Elon Musk of Tesla, SpaceX and PayPal fame.

The state investment includes $350 million in cash and $400 million in loans, technically not Buffalo Billion funds, that New York will cover through grants if SolarCity meets its employment goals. In addition, the company won’t pay state corporate taxes because the state Legislature, at Cuomo’s behest last year, eliminated corporate taxes on manufacturers. A state entity will also own the plant, meaning SolarCity will not pay property taxes.

SolarCity is obligated to create 1,460 jobs at the facility and work with the state to help build a supply chain that will employ 1,440. The company has hired a handful of employees and expects to have 200 on hand by the end of the year. Manufacturing operations will be phased in over the course of 2016.

SolarCity, based in California, is the nation’s largest installers of rooftop solar energy systems. Despite its rapid growth, Wall Street analysts differ on SolarCity’s long-term prospects because the company has reported ever-increasing losses since going public five years ago, including a record $375 million deficit last year. SolarCity reported a loss of $147 million for the first quarter of this year, nearly double that of the same period in 2014.

.About the writer

Jim Heaney is the founder, editor and executive director of Investigative Post, a nonprofit investigative reporting center based in Buffalo. He previously worked as an investigative reporter at The Buffalo News for 25 years.

The Poughkeepsie Journal purchased this article as a freelance story.

Findings

•One of Gov. Andrew Cuomo’s largest campaign contributors from the Buffalo area has been awarded contracts to develop two of the three facilities that will house companies recruited to set up shop in Buffalo.

•The state development corporation managing the Buffalo Billion has steadfastly declined to release public records.

•The state is making its biggest investment — $750 million — to build a solar panel manufacturing plant for SolarCity despite the company’s mounting financial losses and legal problems.

Ten companies have been awarded subsidies worth $200 million or more since the year 2000.(Photo: Source: Good Jobs First Subsidy Tracker)

Major government subsidies

Ten companies have been awarded subsidies worth $200 million or more since the year 2000. The data is below.